Dynamics 365 Cloud vs On-Premise: What’s the Difference and Which Is Right for You?
When implementing Microsoft Dynamics 365, businesses face a fundamental question:
Should we go with Dynamics 365 Cloud or On-Premise?
Both options serve the same core purpose—delivering powerful business applications—but they differ significantly in how they’re deployed, maintained, and scaled. If you're upgrading from a legacy Microsoft Dynamics solution or starting fresh, understanding the pros and cons of each deployment model is essential.
In this guide, we break down the key differences between Dynamics 365 Cloud vs On-Premise, compare costs, explore deployment considerations, and address common myths—so you can make the right choice for your organisation.
What Is Dynamics 365 Cloud (Online)?
Dynamics 365 Cloud, also known as Dynamics 365 Online, is hosted in Microsoft’s secure Azure environment. This SaaS (Software-as-a-Service) model eliminates the need for on-site hardware and reduces the burden on internal IT teams.
Microsoft manages updates, uptime, backups, and security, allowing your team to focus more on strategic outcomes than on technical upkeep.
Why Choose the Cloud?
The cloud is ideal for businesses that:
- Want fast deployment and lower upfront costs.
- Need remote access and mobile capabilities.
- Prefer automatic updates and enterprise-grade security.
- Plan to scale quickly and take advantage of Microsoft's ongoing innovations.
Benefits of Dynamics 365 Cloud
- Access from anywhere with internet.
- No physical server maintenance.
- Seamless scalability.
- Enhanced security and compliance.
- Real-time integration with Power BI, Power Apps, and Azure services.
- Guaranteed 99.9% uptime by Microsoft.
Challenges of Cloud Deployment
- Ongoing subscription costs.
- Limited control over data residency.
- Change management needed for frequent automatic updates.
What Is Dynamics 365 On-Premise?
Dynamics 365 On-Premise refers to the traditional software deployment model where the solution is installed and hosted on your own local servers. This gives your organisation full control over data storage, infrastructure, and system configuration.
Why Choose On-Premise?
This setup is often preferred by businesses that:
- Require complete control over data and infrastructure.
- Must comply with strict industry or government regulations.
- Want to leverage existing server investments.
Benefits of Dynamics 365 On-Premise
- Full control over system and data.
- More flexibility for custom configurations.
- Works with limited or no internet connectivity.
- Better suited for regulated industries with compliance mandates.
Challenges of On-Premise
- High upfront infrastructure and licensing costs.
- Manual updates, patches, and security management.
- Higher dependency on internal IT teams.
- Missing out on cloud-only features like AI, Power Platform, and real-time insights.
Dynamics 365 Cloud vs On-Premise Cost
When comparing Dynamics 365 Cloud vs On-Premise cost, consider more than just initial setup:
| Factor | Cloud | On-Premise |
|---|---|---|
| Pricing Model | Monthly subscription (OPEX) | One-time licensing + IT infrastructure (CAPEX) |
| Maintenance | Included in subscription | Managed internally |
| Upgrades | Automatic | Manual and resource-heavy |
| IT Overhead | Minimal | High |
While Dynamics 365 On-Premise pricing may seem cheaper up front, the long-term costs of hardware, IT staff, and updates can quickly add up.
Architecture & Customisation
Dynamics 365 On-Premise architecture gives organisations deep control over configurations and integrations—particularly important for industries with legacy systems or niche requirements.
In contrast, cloud environments support faster development cycles, low-code customisations, and built-in integrations with Microsoft’s modern tools.
Security & Compliance: Cloud vs On-Premise
There’s a common misconception that On-Premise is inherently more secure. But Microsoft’s cloud infrastructure offers 24/7 monitoring, encryption, and compliance with standards like GDPR, ISO 27001, and HIPAA.
Myth: On-Premise is more secure.
Reality: Cloud deployments often exceed the security capabilities of internal IT teams.
That said, businesses with specific data sovereignty needs may still lean toward On-Premise—provided they have robust internal security practices.
Microsoft Dynamics On-Premise End of Life
Microsoft is gradually phasing out on-premise versions of many products. While Microsoft Dynamics 365 On-Premise is still supported, the long-term focus is shifting to the cloud.
Delaying your migration could mean falling behind in features, performance, and security. Planning your move to the cloud now ensures you stay aligned with Microsoft's roadmap.
Real-World Scenarios: Business Central & Sales
- Microsoft Dynamics 365 Business Central Cloud vs On-Premise: The cloud version provides faster deployment, AI-driven insights, and mobile access. On-Premise is better suited for highly customised, compliance-heavy environments.
- Dynamics 365 Sales On-Premise: Lacks access to cloud-only features like LinkedIn Sales Navigator integration and AI-powered forecasting. The cloud alternative offers a far richer, insight-driven experience.
Installation & Setup: Dynamics 365 On-Premise Installation Step by Step
Setting up On-Premise is a multi-step, technical process:
- Prepare your server infrastructure
- Install SQL Server and prerequisites
- Configure the Dynamics 365 server and instances
- Set up security roles, user access, and integrations
- Test and validate the environment
By contrast, cloud setup is much faster—usually completed through the Microsoft 365 admin center in a few guided steps.
Final Thoughts: Dynamics 365 Cloud or On-Premise?
Choosing the right deployment comes down to your organisation’s:
- Regulatory environment
- Budget constraints
- IT capabilities
- Growth plans
✅ Go with Dynamics 365 Cloud if you value scalability, low maintenance, and fast access to innovation.
✅ Stick with On-Premise if you need strict control, have existing infrastructure, or are bound by regulatory limitations.
That said, Microsoft’s cloud-first approach means that most innovation is happening in the cloud. For future-proofing your business, aligning with this direction is a smart strategic move.
Still unsure? Let the experts help.
Dynamics Square UK has helped hundreds of businesses evaluate, implement, and migrate Dynamics 365 solutions. Whether you’re cloud-curious or on-premise loyal, our team can help you make the right choice for your goals.
Reach out to our team at info@dynamicssquare.co.uk or call 0207 193 2502, and a Dynamics 365 expert will be happy to help.